Cash Management In Singapore

Singapore’s Economic Environment

The Singapore economy performed strongly and experienced 6.4% overall growth in 2005, while unemployment came down to 2.5%. Analysts have projected 4% to 6% growth in 2006 while maintaining inflation at a low 0.5% to 1.5%.

A stable government is committed to Singapore’s multi-pronged growth by focusing on various sectors. The 2006 budget outlines many incentives for businesses operating in Singapore in the financial and related sectors. Some highlights of this budget are as follows:

• 10% concessionary tax rate for Financial Treasury Centres (FTCs) has been expanded to include trading and arranging of derivatives. This is an initiative in line with Singapore’s aim to become a regional financial hub and provides incentives to encourage companies looking to establish regional or even global treasury centres in the Asia-Pacific region, to set up their operations in Singapore.
• 10-year income tax exemption for captive insurance companies to help build Singapore as an insurance hub.
• 30-year concessionary tax incentive period for ship investment vehicles (increase from the earlier 20 years).
• Capitalising on Singapore’s strategic geographic location and efficient port, the government is encouraging the shipping industry to continue in Singapore and retain its status as the busiest port in the world.
• Consistent tax treatment for Islamic banking products to prevent unintended tax consequences. Islamic banking products will be treated on par with conventional financial instruments.

On the regulatory scene, the Monetary Authority of Singapore (MAS) serves as the Central Bank and aims to establish a progressive financial services sector while promoting non-inflationary economic growth. The Association of Banks in Singapore (ABS) represents the member banks in Singapore, sets standards for functioning and in regular consultation with MAS, helps promote a sound financial system in the city state.

In the pipeline is the Integrated Resorts project, a large entertainment complex featuring casinos, amusement parks, hotels, and convention centres. It is due to open in 2010. Such large government-backed initiatives and the drive to create a new tourism hub in Singapore bode well for the large tourism industry, which saw nine million tourists arrive on Singapore’s shores in the past year.

Banking in Singapore

Singapore, due to its geographic location and economic factors, is a banking hub in the Southeast Asian region. The large local banks formed after recent consolidation – DBS, UOB and OCBC – dominate the local retail banking scene, while the MAS, in a step to liberalise commercial banking in Singapore, has provided qualifying full bank (QFB) status to foreign banks – ABN AMRO, BNP Paribas, Citigroup, HSBC, Maybank and Standard Chartered Bank – to be involved in providing a full suite of financial services to individuals and corporates and also issued wholesale bank (WB) status to a number of foreign banks to serve commercial customers in Singapore.

A recent regulatory change is the shift to a five-day clearing week by the Association of Banks in Singapore from 15 May 2006. Moving forward, there will be no debiting or crediting of accounts with cheques, automated clearing house (giro) or interbank transfers on Saturdays. Banks will provide extended cut off times on Thursdays and Fridays for cheque receipts to ensure that businesses are not affected by this change.

Cash Management in Singapore

Singapore has by far the largest number of treasury centres in Asia Pacific, managing foreign exchange (FX) and risk on behalf of the region out of Singapore. With a mature and advanced infrastructure, Singapore is also seeing a trend to establish global treasury centres. Singapore’s infrastructure, political stability and favourable time zone, located centrally in the Asia-Pacific region, have greatly benefited multinational corporations in supporting a global cash position. Another growing trend is for companies to harmonise their supply chain and cash management to attain greater efficiencies.

Payables

With a thrust from the government for enabling e-payments, Singapore is moving away from the use of paper instruments. The dominant means of low value payments is giro, the local account clearing house facility and high value payments are handled through MAS Electronic Payments Systems (MEPS). The Singapore Clearing House Association (SCHA) handles all clearing for electronic and cheque transfers. In order to speed up the cheque clearing process, the electronic cheque clearing system uses electronic images of cheques rather than actual paper.

Receivables

Traditionally, corporates and institutions have been processing their accounts receivables through in-house teams. Increasing pressure on the finance function to rationalise costs and efficient utilisation of resources has led to corporates exploring the possibility of using alternative solution providers to strike a balance between cost efficiency and process improvement. There is a growing trend to streamline these services to financial institutions that have become capable of providing services, such as clearing, posting and reconciliation. Corporates are gaining greater efficiencies by shifting their internal resources to other value-added activities, such as credit control and credit management. The industry is now exploring the possibility of reviewing its existing credit control processes and identifying potential areas of rationalisation for better utilisation of resources.

Singapore’s finance industry has fully embraced Internet technology and is capitalising on this phenomenon to the fullest extent as a relatively inexpensive distribution and delivery medium to grow market share and improve profitability. Most commercial banks, which include all the local banks, have online banking capabilities. The various online services available are account balance and transaction information, domestic and international funds transfers, bill payment and loan applications.

Besides online banking services, these banks as well as other companies that act as intermediaries and aggregators, have developed business-to-business, business-to-consumers, and even person-to-person transaction service initiatives. Other innovative Internet-related business models involve trade finance and documentation process, e-procurement, and the trading of shares.

Liquidity Management

With a fully tradable currency, Singapore’s regulatory environment is among the least restrictive in the world. Regulations permit the setting up of resident and non-resident accounts in multiple currencies and the establishment of complex liquidity structures. Singapore is the world’s fourth largest derivatives trading centre behind New York, London and Tokyo by volume. This provides ample liquidity as well as a variety of investment opportunities for corporate treasurers to consider. Large global financial players offer high-yield liquidity and asset management funds, structured deposits, FX-linked products, etc.

The Singapore dollar (SGD) is one of the currencies, which is a part of the Continuous Linked Settlement (CLS) system, resulting in improved liquidity efficiency and lower funding requirements for CLS users. To facilitate use in Singapore, the MEPS system has been linked to CLS.

Internet Banking and Delivery Channels

Singapore has one of the highest Internet penetration rates worldwide and all major banks provide Internet banking platforms and many also provide host-to-host capabilities to link up to companies’ back-office operations for file transfers. The authorities in Singapore have been proactive in recognising the role of the Internet as a delivery channel and have strongly promoted Internet banking. The MAS has indicated that Internet banking operations are welcome in Singapore, provided that certain criteria are met, including the need for banks to be focused on the potential risks that arise from carrying out banking operations by way of the Internet. Now, with deep penetration of Internet banking, the focus has moved to enhancing the length and breadth of the scope of services offered via electronic channels. We have seen regular reviews and active participation from Singaporean banks, regulators and other government bodies in enhancing online security.

Trade

Singapore’s external trade grew by 13.8% in 2005 in comparison to 2004. This has been fuelled by the numerous Free Trade Associations, which Singapore has signed with the US, Australia, India, Japan, ASEAN and European Free Trade Association. To further encourage trade flows, other FTAs are in the process of being finalised with China (as part of ASEAN), Korea and countries in the Middle East.

Taxation

Singapore has one of the lowest withholding taxes in the region and Double Taxation Agreements (DTAs) with over 50 countries (one of the largest number of DTAs in the region) providing concessionary tax incentives for a variety of industries to establish Singapore as a regional financial hub. Singapore’s individual and corporate taxes are among the lowest for wealthy nations globally. In addition, Singapore provides a cosmopolitan environment with a high standard of living.

Conclusion

Singapore’s economy is growing at a healthy rate with a booming tourism industry, thriving shipping and logistics industry and dynamic financial services industry. With its strategic location in Southeast Asia, stable economy, absence of foreign exchange controls, strong government support and cosmopolitan environment, Singapore provides an ideal location for multinationals to establish regional operations.